The big fight: Retiring early v. working longer?

The Momentum UK Team1 April 2014

Recent estimates have said that one in three children born in 2012 will live for over a century.

With the evolution of healthcare, less manual jobs, and a growing clean-living lifestyle culture, we are fighting fit. We’re getting older and living longer - and this raises questions over how we choose to spend that extra time. So, with suggestions that a child born today may have to work until they are 74, has the dream of an early retirement been knocked out of the ring?

The number of those working beyond the state retirement age has doubled in the last 10 years, from 753,000 in 1993 to 1.4 million last year. Whether or not you have aimed to retire early depends on whether you have a restless or a restful personality, the quality of your working experience, whether you are in a stressful or labour-intensive job, whether you’re physically and mentally well, and, perhaps most importantly, the size of your pension pot and savings/investments.

But what are the implications for your health, wealth, and the wider economy if you can afford to and decide to retire early? Could it be better to work a little longer if you can?

We pit both sides against each other. You decide the winner.

Does early retirement really extend your life?

Seconds out in the ring as we delve into the truism that early retirement adds years to your life. But is that always the case?

An often-quoted paper originally attributed to aircraft manufacturer Boeing stated that employees who retire at 55 live to, on average, 83. But those who retire at 65 only last, on average, another 18 months. This sounds like good evidence - until you uncover that Boeing say that it is simply untrue.

Is the economy better off for having more older workers?

A study by petrochemical company Shell found that for past employees in the US, mortality was slightly earlier for staff who retired at 55 than for those who continued working to 65.

But take this research with a pinch of salt: this does not look at why some employees chose to retire earlier. Retirement at 55 could be as a result of personal choice and financial ability, or it could be because of poor health or serious illness. The statistics for those who retired at 65 do not take into account anyone who died before that age, whereas the 55+ figures do. Both of these could distort the picture of an early retirement being linked to an earlier mortality.

An ageing population puts pressure on the government to fund future social care and pension obligations. The Institute of Economic Affairs estimates that the UK government will need to cut spending by more than a quarter, cut health and social protection spending by half, or impose significant tax hikes. So, can a population encouraged to work longer into old age go some way to help pay for the cost of our ageing? Or do older workers deprive the young of jobs in a still-volatile employment market?

The surge in the number of people working past the state retirement age may be more due to necessity than desire. In the wake of the financial crisis many over-50s feel forced to work longer to boost meagre retirement savings. But working older may be a trend that will boost Britain’s overall prosperity, as the UK acquires a demographic bulge of 45 to 66 year olds. The impact of these post-war baby boomers retiring, spending less and paying less tax could seriously impede the economy for the next few decades.

What about harnessing the amassed experience and workplace wisdom the older generation have to offer? The idea of the older workforce stealing jobs from the young is part of what economists call the ‘lump of labour fallacy’ - the belief that there is a finite and fixed number of jobs in the economy. In reality, the economy tends to expand with the size of the workforce.

Are you really better off financially for working longer?

In a word: yes.

But money isn’t everything. It’s about making sure that you have enough to live the life you want to in retirement. This will be different for different people, and it’s worth working out what you think you’d like to have.

Working longer means that you continue to receive an income, giving your retirement savings extra time to grow both through your contributions and through the effect of compound interest. You can play around with changing your retirement date and level of contributions using our pension calculator.

To work out how your retirement savings fit into your overall financial planning, take a look at our free tool Money Hub. This could help you to work out whether you can afford to contribute more to your pension as part of your everyday budgeting, and what the projected worth of your pension pot could be when you want to retire.

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